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What are the main hurdles I need to overcome to sell my business?

Every business owner needs to know two important things about their business:

Where is the exit door? and

How do they open it?

Unfortunately, too many owners don’t know the answers to these questions. Many don’t even know that these questions are so important. There are a number of (understandable) reasons for this. Perhaps the most common hurdle is “I am too busy trying to run the business to think about the exit”. Like any excuse based on not enough time, the issue is one of priorities. It is often not high enough up on the agenda. The danger is that it never becomes high enough until it is too late. The first step is recognising that these questions are important.

The second hurdle is that owners simply don’t know who the potential buyers might be. In many cases, the best way to maximise value for your business is not to sell to a competitor but to sell to a complementary business where the synergies offered by your business allow the buyer to extract considerable value both from its existing business and from your business. Remember that a business is worth what someone is prepared to pay for it. The more value a buyer can extract from your business, the more you can ask them to pay. Often competitors in the same sector will not be able to leverage the same synergies. A good example might be selling a whisky business to a French wine producer. The French wine producer might be able to use its existing distribution channels to increase significantly the global sale of your whisky and use the existing distribution channels of the whisky business to increase the sales of its wine.

Taking some time to think about who might be on the other side of the exit door is crucial. If your buyer is a French wine producer, shaping your business so that it might be attractive to that type of business is a very good way to maximise the price you can achieve. This requires that you have a very good understanding of your business and the business of the buyer. Too often, businesses think their exit is a sale to a larger competitor without thinking about other options.

Poor financial performance is also a hurdle that many owners think they need to overcome before they start giving thought to an exit. This is flawed logic. Performance drives value not exit strategies. Owners need to address financial performance but it needs to be considered in conjunction with exit strategies. If there are different options available to improve financial performance, the one that fits better with an identified exit strategy is likely to be the right one.

Often the biggest hurdle however for many owners is they simply don’t have any desire to sell. They might enjoy a comfortable lifestyle, enjoy the position they have within the business and the local community and have concerns (often sub-consciously) about how that might be affected if they were no longer involved in the business. This can be a particular area of tension in family businesses where not all the owners might be involved in the business and the stakeholders will have competing interests: the MD might be less keen to sell than a shareholder who lives overseas and wants to extract his or her capital value from the business. This can be a hard hurdle to overcome. Often though, taking some time out to consider what other opportunities walking through the exit door might bring is enough to overcome this hurdle.

In summary:

Take some time to consider potential exit strategies - if you don't know the exact location of the exit door, at least work out which floor it is on and who might be on the other side of the door!

If you can identify an exit strategy (or strategies), make sure those strategies inform the ongoing decisions taken in the business.

If you have competing interests among different business owners, try to avoid letting them fester so that resentment grows and positions become more entrenched.

Value is only one aspect of exit. Focusing on the right exit strategy will drive value.

Try to run your business with one eye on the exit door - what will the potential buyers be looking for when they take over the business?

Click here to access our M&A Glossary, where we have tried to set out a "jargon buster" to help you understand more about your acquisition or disposal.

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